Unit-1 Chain of Production
Unit-1 Chain of Production
COMMERCE
Production
UMAR SHIHAM
Unit 1-Production
The Chain of Production-Chapter 1
Terms in Production
1. Products-It is the goods and services produced by a company, to satisfy needs and
wants of customers.
2. Production – It is any activity which serves to satisfy human needs and wants.
3. Producer- It is a person or company who produces products to satisfy need and wants.
4. Consumers – They are the ultimate users of goods and services produced
What is Production?
• Production can be defined as any activity that uses goods and services to satisfy
human needs and wants
• The process of production creates products which are used to satisfy needs and wants
• Economists may describe production as the creation of utility
Creation of Utility
• Creation of utility can described as making something useful that was not as useful
Ex-Turning wool into Cloth
• There are 3 types of Utilities and they are
1. Utility of form: Any activity that changes the form of a product so that it becomes
more useful to the consumer for example conversion of wood into more useful
furniture.
2. Utility of place: Any activity that transfers the goods or services to a location which is
within easier assess to the consumer, for example transfer of goods from far off
factories to nearby retail shops.
3. Utility of time: Any activity that causes the availability of a product on time when it is
needed, for example availability of wheat throughout the year
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Ex………………………………………………………………………...
Types of Production
• There are 2 types of production they are
1. Direct production
2. Indirect Production
Direct Production
• When a person produces goods and services to satisfy his own needs and wants it is
known as direct production
Indirect Production
• When a person produces goods and services to satisfy others needs and wants it is
known as indirect production
Branches of Production
• There are 3 branches in Production they are
1. Primary Production
2. Secondary Production
3. Tertiary Production
Primary Production
• Primary production is the first stage of any production process
• Primary production is concerned with extracting natural resources from the earth such
as minerals , fuel or raw materials
• Occupations such as fishing , mining , farming and quarrying are considered to be
under primary production
• Once resources are extracted they are in an unusable state so they moved to the
secondary stage of production
Secondary Production
• Secondary production is the second stage of the production process
• Secondary production is concerned with converting raw material extracted from
primary production into finished goods
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• Secondary production consists of Manufacturing , Processing and Construction
• Products converted into finished goods are usable but are in the wrong location so are
moved to the third stage of production
Tertiary Production
• Tertiary production is the third and final stage of the production process
• Tertiary production is involved with the provision of services to consumers
• There are 2 types of service
1. Commercial services
2. Direct personal services
Commercial Services
• All services which are related to distribution of goods and services from producers to
customers are known as commercial service
Ex-communication, finance, insurance, retailers and wholesalers
Direct Services
• Provision of personal services directly to the consumer without anyone else involved
is known as direct services
Ex-teacher, barber and tailor are usually personal services to satisfying immaterial
wants
Added Value
• Value is added to a product when it is transformed at each stage of the production
process
• Added Value is the difference between the value of a firms output and the cost of
materials , components and services used to create it
• The finished goods are worth more than the cost of all the parts that makes the goods
• Added Value = Selling Price – Cost of production
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Additional Notes
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